Consultation Response

Transcription

1 November 2007 Consultation Response Friends of the Earth s response to the Competition Commission: Notice of Possible Remedies

2 Measures to address barriers to entry from the planning system 16 Remedies that would facilitate greater availability of land outside of the town centre. The planning system should not be changed to allow for more retail development outside of the town centre for the following reasons: (i) Planning has a fundamental role in promoting sustainable patterns of development and achieving social aims Although the promotion of sustainable development is not explicitly within the remit of the Competition Commission the Commission must be aware of the wider consequences of its recommendations, as it acknowledges in question 19 of the remedies notice. Out of town retail development encourages more car based shopping trips. Urban food miles by car increased by 9% between 2005 and 2006 an increase which has been attributed to people travelling further to do their food shopping. Further increases in car based shopping will mean an associated increase in carbon dioxide emissions in direct contradiction of Government commitments to cut climate change gas emissions in the UK. Planning also aims to tackle social exclusion for example by ensuring that everyone has access to local facilities to meet their day to day needs including shopping an aim that would be undermined by more shopping being located in out of town sites. The Competition Commission should have regard to the different needs of all households when putting forward remedies but it appears to have neglected the needs of the significant number of households without access to a car 1 or those who choose not to use one for every shopping trip. The Commission has focussed entirely on shoppers who drive to a big supermarket to their shopping (ii) The proposals would undermine the Government s long standing aim to maintain and nurture the vitality of town centres. The existing town centre planning policy set out in PPS6 has helped to encourage retail development in town centres because it has given investors the confidence to locate on town centre sites. However it has been less successful in locating supermarket development in town centres 75% of supermarket development has taken place out of the centre between 1999 and This raises a fundamental question about why the Commission thinks that it is necessary to make more out of town sites available for supermarket development. But the Commission must also be aware that if planning policy was changed in line with its proposals it would not only be food shopping that would be developed in out of town locations. Planning does not distinguish between types of retail development so all types of retail including DIY stores and shopping centres would be able to more easily locate out of town and even those companies which have shown some commitment to town centres will be reluctant to invest in town centres sites knowing that they will face trade diversion to out of town rivals. It follows that the economic decline of our town centres would be a consequence of the Competition Commission proposals. (iii) Freeing up sites, whether edge of town, or out of town, for additional large format supermarket stores would not improve choice for consumers. 1 Almost half of lone parent households with dependent children, and 69% of single person households where the householder is over the state pension age do not have access to a car (from research for British Brands Group, 2007) 2 BCSC Future of Retail Property In Town or Out of Town? 2

3 The proposals would only achieve limited increase in choice between large stores but consumer research shows that consumers value the choice offered when there is a diverse range of retail types available. For example research for the British Brands Group found that the vast majority of shoppers think it is good to have a convenience store nearby and the majority of shoppers also wanted more specialist food and drink shops nearby, with most people believing that a local butcher or baker would stock better quality products than supermarkets 3. An NOP survey conducted earlier this year also shows that the majority of people (80%) want more independent local shops in their local area 4 The Competition Commission s proposals would actually reduce choice and work against shoppers expressed desires when assessed in this wider sense as large format stores would draw trade away from independent stores in the town centre. The Competition Commission does not seem to acknowledge the detrimental impact that a large out of supermarket can have on town centre traders. For example a study in Fakenham, found that town-centre food retailers experienced a 64 per cent decline in market share following the opening of an out-of-town supermarket. The number of convenience food stores fell from 18 to 13, and the number of vacant shops rose by 33% 5 (iv) Supermarkets do not need additional help from planning policy to expand. According to data presented by the Competition Commission large supermarkets continue to grow in line with historic growth rates and on average 2 supermarkets have been opening every week since Supermarkets also use a range of tactics to manipulate the planning system to their own advantage which would not be available to smaller retailers including the use of Section 106 agreements to fund major developments alongside the store to overcome planning objections and using their considerable resources as a threat against local decision makers should a case go to an appeal. Friends of the Earth has already provided the Competition Commission with evidence of these practices 6. (v) Weakening existing policy restricting large retail development out of town would undermine community participation in the planning system. Communities should have the opportunity to help to shape the future of retail provision where they live. They should be able to do this through the Local Development Framework and in response to individual planning applications. A national policy which encouraged the identification of sites in out of town locations would make it hard for local planning authorities to work with local communities to identify appropriate sites for retail development as new development would already be encouraged to locate out of town. The Competition Commission proposals are aimed at allowing more big supermarkets to be built. But many communities are strongly opposed to new supermarket developments. Tescopoly has details of some 100 communities around the UK opposing a supermarket 3 British Brands Group, 2007, Consumer s shopping wants and UK grocery retailing are consumers needs being met? 4 GfK NOP survey 15 th 17 th June Office of the Deputy Prime Minister (1998). Impact of large foodstores on market towns and district centres 6 Friends of the Earth, Shopping the Bullies,

4 development. In cases where communities are able to express a view there can be overwhelming opposition to a new supermarket development. For example in Darlington the council held a consultation to gather views on a proposed Tesco store and found that 76% of local people who responded were against the proposal. A national opinion poll earlier this year conducted by NOP found that almost half of the public (43%) in the UK would oppose a new Tesco store in their area while only a third (33%) would welcome one 7 (vi) Planning policy should be strengthened not weakened. Instead of weakening PPS6 in the way envisaged by the Competition Commission Friends of the Earth is proposing strengthening of PPS6 by the introduction of a presumption against out of town development. This policy would not be a ban on out of town development but would only allow out of town sites to be developed in exceptional cases where sustainable development criteria were met. We believe that this would help to deliver the Government s aims of ensuring that the planning system supports the growth and development of our town centres. 16 (a) whether the planning system should distinguish edge-of-centre sites from out-ofcentre sites, recognising that edge-of-centre stores can benefit the town centre A presumption against out of town development would in effect make a distinction between edge of centres and out of centre sites. However Friends of the Earth would not support a policy that presumed in favour of edge of town sites for large format stores. PPS6 already contains a policy bias in favour of such developments where there are no sites available in the centre; para 2.6 states that in such cases local planning authorities should seek to identify, designate and assemble larger sites adjoining the primary shopping area (i.e. in edge-of-centre locations). In the case of grocery retailing it is particularly hard to see why such a policy bias in favour of large format stores is necessary since groceries do not need to be sold through large-format, general merchandise stores. The Commission s assumption that large supermarkets on the edge of centre will benefit the centre does not seem to be based on firm evidence that this is the case. In fact in many cases the reverse is true. The impacts of such developments are highly dependent on exactly how and where they are sited and how they are linked to the centre. One Government-commissioned study 8 highlighted the case of a superstore classed by planning authorities as edge-of-centre, which was actually so far away from the main centre it was difficult to get between the two for linked shopping trips. The study concluded that the current definition of an edge-of-centre store as being m from the centre (as used by planning authorities) was likely to be too wide for smaller market towns. The Competition Commission has already received evidence of at least one case study 9, in Stalham, North Norfolk, where an edge of town supermarket had led to a dramatic downfall in trade to the high street in a small market town. Ease of access is also important it is not just a case of distance, but also the way that access is laid out and how easy it is for pedestrians to make their way from the superstore to 7 GfK NOP survey 15 th 17 th June Office of the Deputy Prime Minister (1998). Impact of large foodstores on market towns and district centres

5 the town centre; a large road in the way will deter many people. The Government study in fact concluded that the principle effect of the new stores was to divert trade from the town centre to the edge-of-centre locations 18. Parking restrictions in supermarket car parks (for example restrictions to two hours parking which are commonplace) can also discourage shoppers from visiting other shops. Rather than leading to spin-off shopping, edge-of-centre has the potential to produce spinaway effects, where shopping is drawn away from the existing centre. Even a study by a supermarket (Somerfield) bears this out. In 1996, their survey of 12,000 people doing their main shop at a Somerfield store at 33 sites found that for every pound spent in one of its town centre stores, an average of 46 pence was spent at other nearby shops 19. But at edgeof-centre stores this linked spending more than halved to 21 pence for every pound spent at the supermarket. At out of town locations it fell even further to just 10 pence. Edge of town sites should be subject to a robust set of tests (including quantitative need for the development) to ensure that they do not have a negative impact on the town centre. 16 (b) the extend to which a possible amended planning test sould recognize quantitative and qualitative aspects of need 17 (a) abolition of one of more of the various tests included in the current system The Competition Commission should not recommend abolition of any of the existing tests in PPS6. Friends of the Earth considers that the existing policy would meet its aims more effectively by maintaining both quantitative and qualitative need tests and by integrating new tests into the policy. The need test is a key policy tool currently used by local planning authorities to ensure that out of town development would not divert trade from the town centre. If the need test is removed towns may have to accept additional retail development outside of the town centre simply because a central site was not available irrespective of whether that town needs any additional retail floorspace. The inevitable consequence of floorspace being provided in excess of need would be drawing away of trade from the centre to the detriment of the town centres vitality and viability and to the detriment of consumer choice. In a survey of planning officers carried out by Friends of the Earth 81% of officers believed that the absence of a need test would make it harder to focus new development in town centres. In other words the removal of the need test would make it harder for the Government to deliver on its objective of maintaining and nurturing the vitality and viability of town centres. Evidence from the US where there is no need test and a more free for all attitude to retail development suggests that such an approach does not encourage greater competition or lead to more consumer choice. Instead it has led to a highly concentrated retail sector with many towns having only one choice for groceries and household staples in the form of Wal- Mart. Ironically some American states are now considering introducing a need test before deciding whether to approve a large retail store. Friends of the Earth has not seen any firm evidence of damaging effects of the application of the need test that would justify weakening policy by removing the need test. However we do consider that the existing set of tests could be made more effective particularly in fostering more sustainable patterns of retail development and creating quality places to live which are stated aims of the Government in developing its town centre policy. 5

6 The following additional elements should be included in a new integrated impact test and properly reflect the wider policy goals of land use planning: Local Economic Yield This should be incorporated into PPS6 as a new quantitative element of the new impact test to ensure that retail planning policy is helping to boost the economic health of town centres. The current system does not make any distinction between developments with local economic benefits and those which mainly benefit the occupier of the development. Diversity This would test whether new retail development will improve the choice available to shoppers and enhance the attractiveness of centres. Diversity of retail representation is recognised in PPS6 as an indicator of a healthy town centre (PPS6 para 4.4.). Scale The existing test for appropriate scale of development should be retained taking into account the size of the town or centre in which it is to be located. Social Inclusion and Cohesion Planning policy aims to tackle social exclusion. Retail provision for day to day needs should be accessible by foot especially in areas of low car ownership. This is likely to mean the provision of neighbourhood stores rather than large stores located on major roads. Accessibility Shopping facilities need to be accessible by public transport, walking and cycling with new developments integrated effectively into existing public transport or planned transport. Carbon The Government has acknowledged climate change as an urgent issue and has acknowledged the important role of land use planning in reducing emissions. The carbon contribution of new retail developments should be assessed in terms of transport to the site and building related emissions. 18 Introduction of a competition test The introduction of a competition test would help to prevent situations where one multiple retailer becomes very dominant in a particular location. Friends of the Earth agrees that local market concentration needs to be tackled in the interests of greater consumer choice. However we consider that this aim should be achieved by the following measures: - Introduce a diversity test into planning policy as outlined above. A diversity test would be a more appropriate planning tool and would have a greater impact on consumer choice as it would help to ensure a diverse mix of retail types rather than simply ensuring choice between major supermarkets. Diversity could be measured in a number of ways including size of retail unit, or type of retailer (e.g. multiple, independent, specialist). - Instruct local planning authorities that the operator of a proposed store can be a material planning consideration. Combined with the diversity test this would enable planning authorities to consider whether the proposal contributed to healthy retail mix in the area but would also allow planning authorities to consider whether a retail development put forward by a major supermarket would have more impact on other 6

7 traders due to the greater buyer power of the company. There is a precedent in planning case history for this 10 - Introduce a local market share threshold which would prompt a referral to the OFT as a statutory consultee when an application from a company which already has that market share or above is received. 19 working against wider public policy objectives. Friends of the Earth has highlighted in our response to the above questions the way in which the Competition Commission s proposals would fundamentally work against wider planning policy objectives. The Competition Commission should note that Planning Policy Statement 1 states that sustainable development is the core principle underpinning planning PPS1 also states that planning should contribute to ensuring that development supports existing communities and contributes to the creation of safe, sustainable, liveable and mixed communities with good access to jobs and key services for all members of the community. The Competition Commission has failed to take account of all members of the community and in particular the needs of low income consumers without access to a car in its proposed remedies. Its proposals would lead to retail facilities being concentrated in locations accessible mainly by car and the loss of crucial local shopping facilities. The Competition Commission also needs to acknowledge the important role for the planning system in contributing to the Government s commitments to reduce climate change emissions. The draft Planning Policy Statement on climate change states that spatial planning should contribute to reducing emissions and stabilising climate change. The Competition Commission s current proposals for freeing up more out of town sites for development would work directly against these aims. Measures to address barriers to entry from controlled land 21 Remedies to prevent grocery retailers using various mechanisms available to them to control land with the effect of creating a barrier to entry. Friends of the Earth would support measures to prohibit grocery retailers from imposing or entering into restrictive covenants or other agreements in relation to their sales or acquisitions of land. We are aware of cases where such agreements by the biggest supermarkets have prevented a smaller retailer from opening a new store, these were outlined in our report Shopping the Bullies which was submitted to the Competition Commission. We would support such measures being applied to all grocery retailers. 22. Remedies that would require grocery retailers to divest land holdings 10 In the following case the Inspector refers to the companies buying power as well as the range of goods to be sold. In this case the Inspector is referring to the greater volumes of traffic and customers generated by a supermarket operated by a national chain. 7

8 Friends of the Earth would support remedies that would require grocery retailers to divest land holdings both in areas of existing high concentration and in areas where land holdings would if developed produce high concentration. However we are concerned that the most likely result of many land divestitures would be that the land would be acquired by a rival major supermarket and that this would not result in a significant increase in consumer choice in the area. It is vital that appropriate use of the land to be divested is identified through the planning process with input from the local community. The future development of the land should be subject to the new planning tests recommended above so that diversity of retail provision can be ensured. Other measures to address local concentration 25 remedies requiring store divestitures Friends of the Earth would support remedies requiring store divestitures in areas of high concentration. A baseline threshold for local market share could be identified above which local markets are assessed. Local circumstances can then be taken into account including whether in the event that a store divestiture is deemed necessary any conditions need to be attached to the sale of the store. For example in some local markets it may be more beneficial to consumers if the store were to be purchased by a smaller supermarket or independent retailer to increase choice. Other Possible Remedies The Competition Commission has rightly identified concerns about local concentration but it has not addressed national concentration. The ability to pass risks and costs on to suppliers as well as the ability to undermine the viability of smaller retail businesses is directly related to the market share of the retailer. Although we welcome the remedies that the Commission is proposing to offer greater protection to suppliers we are concerned that it is only considering behavioural remedies at the national level and not structural remedies so the remedies attack the symptoms but not the underlying causes. This leaves the risk that grocery retailers will try to find new ways to exert buyer power. Measures to address the transfer of excessive risks and unexpected costs to suppliers We welcome the Competition Commission s acknowledgement that the transfer of risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices needs to be addressed. We do not consider that changes to the Supermarket Code of Practice (SCOP) alone will adequately address the practices that the Commission has identified and urge the Commission to use it powers to appoint an adjudicator to oversee the enforcement of the SCOP and to take a proactive role in monitoring the grocery market. 27 remedies that would address the transfer of excessive risks and unexpected costs to suppliers by grocery retailers and symbol groups: 8

9 (a) The SCOP needs to be strengthened. One of the key problems with enforcement of the SCOP is that it is so vaguely worded with the use of the word reasonable throughout which is open to interpretation. The proposed code put forward by the Competition Commission in 2000 was clearer about which practices were damaging to suppliers but this was weakened after intervention by the supermarkets. The SCOP should also be changed to ensure that it covers primary producers. Key agricultural sectors such as meat and dairy are effectively excluded from the existing SCOP and yet are under the same pressures and abuses identified in the Commission s report. Friends of the Earth s survey s of farmers in these sectors reveal that farmers clearly identify supermarkets as the primary source of costs being passed along the supply chain via intermediaries. Overseas suppliers are included in the current SCOP and this must remain the case but more proactive monitoring will be required to identify unreasonable transfer or risks and cost in international supply chains. (b) and (c) Friends of the Earth would support the extension of the SCOP to cover more retailers including symbol groups. However an alternative approach would be to identify a market share threshold over which a retailer would become subject to the SCOP. For example the Competition Commission s 2000 report concluded that any retailer with 8% or more of the market was able to use buyer power to its advantage. If the SCOP were to apply to all retailers including those with considerably less buyer power than the biggest four supermarkets it would be essential for an independent body such as an ombudsman to be appointed which had the trust of all suppliers to avoid a situation where suppliers may feel more confident in taking up a complaint against a less powerful retailer than against the big four supermarkets. The climate of fear amongst suppliers has been acknowledged by the OFT and the Commission and must be addressed for enforcement of the SCOP to be effective. (d) As pointed out above the language of the SCOP is currently too vague to be effective so the SCOP needs to be tightened so rule out harmful practices. However as some practices are more effectively prohibited under a stricter code new practices may emerge that have not been identified in this inquiry as supermarkets look for new ways of passing risk and costs along the supply chain. It is therefore essential that an independent body such as an ombudsman is appointed with a proactive remit to monitor supermarket supplier relationships and to identify any such new practices that emerge. This independent body must have the power to revise the SCOP if it is not working effectively. (e) We consider that the existing restrictions should remain with tightening up of the language as pointed out in answers above. (f) The way in which the current restrictions in the SCOP are phrased does militate against complaints because the wording is too vague. Some practices need to be clearly prohibited. The following is an illustration of how the existing Code could be tightened; it is not intended to be a replacement Code which would need more detailed legal 9

10 definitions, but we believe that it demonstrates that providing more certainty for suppliers is a reasonably straightforward task. The new Code should include provisions that: i) Supermarkets must not make retrospective and unilateral reductions on an agreed price or demand rebates retrospectively. The price must be agreed between supplier and supermarket and recorded in writing, if any changes are made these should also be agreed by both parties and recorded in writing by the supermarket. ii) iii) iv) The invoice price paid to the supplier, and the retail price subsequently charged for that product, must be recorded in writing and made available on request by the investigating authority. Supermarkets must not make retrospective changes to quantities ordered which result in a reduction of the agreed price to the supplier. The original specifications for the product, plus any subsequent changes in those specifications, must be agreed by both parties, recorded in writing and made available on request by the investigating authority. v) All invoices must be paid by the supermarket within 30 days of the date of the invoice. vi) vii) viii) ix) There must be no obligation for suppliers to contribute to the supermarket s marketing costs (e.g. consumer or market research, costs of store refurbishment or opening, artwork or packaging design, better positioning of products, or increasing shelf space.) Suppliers must not be required to pay for wastage of their products by the supermarket (for example due to damage to the product that happens on supermarket premises or due to the supermarkets own forecasting errors) after that product has been delivered to the supermarket. Suppliers must not be required to make payments to the supermarket to compensate for lower sales of their product than anticipated by the supermarket. Reductions in agreed price must not be passed back to suppliers when the supermarket decides to use their product for a promotion which reduces the retail price (including 2 for the price of 1 or 3 for the price of 2 type promotions), unless there is an agreement in writing between the supplier and the supermarket 30 days before the promotion starts. x) No charges for consumer complaints must be passed to suppliers unless the complaint is related to a proven problem directly relating to the quality of that suppliers product. Compensation to customers for any damage to the product which occurs after the supermarket has taken delivery of the product must be met by the supermarket. xi) Packaging and transport specifications must be agreed between supplier and supermarket and put in writing. Any subsequent changes which incur costs to the supplier and which are at the request of the supermarket must be paid for by the supermarket. 10

11 xii) xii) Suppliers should be able to use any supplier of goods and services (e.g. for packaging of their product) as long as this meets the supermarket specifications. The supermarket must not specify a third party supplier of such goods and services from which it receives a payment in respect of that requirement. Supermarkets must not require payments or better terms as a condition of stocking or listing a suppliers products nor must they require payments for better positioning of a suppliers products within the store. (g) The current monitoring and compliance with the SCOP is not effective and that is reflected in the lack of complaints brought forward under the SCOP despite there being evidence that practices that were meant to be addressed by the Code continue. This is due to the vagueness of the wording as explained above and the fear amongst suppliers of notifying the supermarket in question of a complaint. It is therefore essential that an independent monitoring and enforcement body be appointed to pro-actively gather information from suppliers as well as dealing with complaints. (h) A new independent body to monitor compliance with the SCOP and other remedies needs to be appointed. It must be totally independent and therefore should be separate from the OFT. The new body must have the following roles and powers: i. Investigative powers so that it can undertake regular surveys, spot checks and visits to suppliers and retailers. These powers must include gaining evidence from overseas suppliers. ii. Power to compel suppliers and retailers to provide information on their trading terms iii. Powers to impose changes to the SCOP if new harmful practices emerge. iv. Responsibility to report annually to the Competition Commission, the Secretary of State and the OFT. v. Power to impose fines and penalties on retailers for breaching the code vi. Able to take complaints direct from suppliers without the complaint first going to the supermarket. vii. Able to accept information from third parties including groups representing suppliers or other retailers where these include evidence of a breach of the code. The body should be exchequer neutral and be funded by a levy on the retailers proportionate to size. 28 Scope to identify best practice and how to disseminate A new independent body such as an ombudsman would be well placed to identify best practice and could disseminate this to retailers and suppliers. 11

12 12